Offshore Wind Success Continues through 2017

The offshore wind market does not see as much capacity installed in a given year as its onshore counterpart. Despite that, the sector is showing higher growth rates and steady success at reducing financial risk and cost. According to Navigant Research, which just published a report on the sector, the offshore wind market is expected to grow at an 11.1 percent compound annual growth rate (CAGR) between 2017 and 2022, compared to single-digit growth rates for onshore wind. This article discusses many key takeaways from the report.

Global Wind Market Installation Capacity Overview

First, a snapshot of the market in terms of capacity added. The global wind industry installed an estimated 3.3 GW of new offshore capacity in 2017, bringing the global cumulative total to almost 17 GW. These are preliminary estimates based on confirmed and planned end-of-year project commissioning. Final figures are subject to change as final 2017 commissioning is confirmed through the first few months of 2018.

More impressive than estimated 2017 capacity added is the amount of offshore wind presently under construction, which portends a healthy market in coming years. There is approximately 7.9 GW of offshore capacity under varying stages of construction. This is led by Europe with 4.9 GW under construction, most of which is expected to go online by the end of 2019. After years of a slow start, China is showing 2.3 GW of offshore wind in varying stages of construction. In recent years, the Chinese market has shown it can install massive amounts of onshore wind—23 GW in 2016 and 31 GW in 2015—so it is no surprise that its offshore ambitions are progressing significantly.

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Globally, over 18.7 GW is in advanced planning stages. This does not guarantee all these projects will proceed to construction. Navigant Research’s five-year forecast—including 2017 capacity estimates—shows a market anticipated to install over 24 GW of offshore wind at a CAGR of 11.1 percent. Cumulative total capacity is expected to surpass 40.6 GW by the end of 2022. The forecast for offshore wind shows a market reliant on a handful of key countries like the U.K., Germany, the Netherlands, France, Belgium, and China, which have all jump-started their markets through evolving supportive policies.

Offshore Power Contract Prices Plummeting

Fixed payment policies such as the feed-in-tariff are gradually being phased out in favor of more dynamic and price-competitive contract auctions in both the onshore and offshore sectors. These are driving down the cost of wind power to utilities and ratepayers, although they are squeezing the profitability of wind turbine manufacturers and have contributed to consolidation in the turbine sector in recent years.

Some power contract price drops seen in Europe are eye-opening. In the U.K., 3,196 MW was awarded in mid-September 2017. Ørsted (previously DONG Energy, renamed in October 2017) will construct its 1,386 MW Hornsea Project Two with a winning bid at £57.50/MWh ($75.75/MWh). Staged commissioning is planned for years 2022 and 2023. EDP Renovaveis (EDPR) also won its CfD bid at the same £57.50/MWh ($75.75/MWh) price for its 950 MW Moray Offshore Wind Farm East with a similar 2022-2023 completion timeframe.

Other notable drops in project power contract price have been seen in Denmark, the Netherlands, and Germany. For example, the Dutch tender in 2016 for 700 MW Borssele 3 and 4 at €72/MWh ($64.3/MWh), the Denmark 600 MW tender in 2016 for Krieger’s Flak at €49.9/MWh ($58.9/MWh). In Germany’s 2017 auction, 1,490 MW of offshore wind was awarded at an average price of €44/MWh ($51.9/MWh). For two of the projects—OWP West and Borkum Riffgrund West 2—Ørsted made bids at €0/MWh. Ørsted stated it is confident it will be able to build these projects profitably without receiving a subsidy on top of the wholesale electricity price. The wild card is that the penalties for the companies backing out of the German projects are minimal. Time will tell if these ambitious price levels will truly lead to project construction at zero-subsidy.

Global Offshore Wind Turbine Overview

A major driver for the offshore wind market’s success is the turbine technology solutions offered by the original equipment manufacturers (OEMs) that made the major R&D and capital investments needed to commercialize large multi-megawatt offshore turbines. Because foundation, substructure, and construction costs are so much higher as a proportion of project CAPEX for offshore projects versus onshore, the central cost management strategy is to maximize the total amount of capacity per wind turbine. Foundation and substructure represents between 15-20 percent of CAPEX at an offshore wind project versus around 3-4 percent for an onshore project. Assembly and installation represents around 19 percent of CAPEX for an offshore project versus 2-3 percent for an onshore project.

As a result, wind turbine megawatt nameplate ratings by project and year (installed, under construction, and advanced planning) show that wind turbine technology continues to evolve and scale up. This is particularly the case for larger turbines with nameplate ratings between 6 MW and 9+ MW. These turbines are enabled by ever increasing rotor diameters in the 150- to 180-meter range on the latest flagship turbines from the top manufacturers. Siemens Gamesa holds the leading market share for global offshore installed capacity, followed by Vestas, Senvion, and Adwen (presently under Siemens Gamesa parent company). The majority of the remainder are Chinese wind turbine OEMs that are steadily increasing their offshore turbine offerings and scaling up as well. A Siemens Gamesa licensing agreement is allowing one Chinese turbine OEM to rapidly accelerate in the market. As turbines increase in size and mass, foundation solutions must follow. A market share analysis by foundation type for all installed offshore wind capacity shows that steel monopile foundations currently lead the market with 75 percent of installed capacity as of 2017. However, as different seabed terrains and deeper water depths are encountered, more steel jacket, tripods, and other variations are being deployed—including two floating offshore projects commissioned in 2017.

The first truly commercial scale multi-turbine floating project installed is one of the more notable achievements in 2017. Norway’s Statoil installed a 30 MW wind farm named Hywind on the Northeast coast of Scotland that is made up of five 6 MW 154-meter rotor diameter Siemens Gamesa turbines. Statoil said capital costs for Hywind have fallen over 60 percent from an earlier one-turbine pilot floating project installed by Statoil in 2009. Costs could fall a further 40-50 percent for future projects. If the cost and risk of floating foundations can be minimized and the technology perfected, floating offshore wind projects will be suitable for a vast new number of markets. These include the entire western coast of North America and Latin America, Japan, South Korea, parts of China, and areas of Southeast Asia where large and fast-growing population centers are seeking new sources of electricity.

A Bright Future for Offshore Wind

All of these recent developments and expected growth are promising: over 11 percent CAGR through 2022 with annual installations ranging from 3 GW to 5 GW, turbines with rotors exceeding 170 meters, nameplates soon to exceed 10 MW, floating foundations now a reality, and developers confident enough to bid into some markets at the fluctuating market price with zero-subsidy. The proof is already here that the future of wind power is increasingly going to be offshore in many global markets.